What are retirees investment alternatives with interest rates dropping? 22



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Retirees all over the country, who have their hard-earned life savings in cash-based investments were left reeling on Tuesday when the Reserve Bank dropped interest rates by 0.25% relatively unexpectedly.  For many it means that there is less money in their hip pocket every week until economic circumstances change.  Our article two days ago on how interest rate cuts affect retirees certainly created a lot of agreement, with many feeling lost about where to invest and burned by the surprise cut.  So we asked the experts and did some digging into what your alternatives are and how you can manage your risk.  We have to start by saying that these are insights only, and you should, before any investment decisions seek the advice of a qualified Financial Planner.

There is no doubt about it, seniors around Australia are concerned.  We had lots of comments on our site that were clearly distressed by the continued interest rate cutting, and the impact it is having on lifestyle of largely self funded retirees.  People are concerned about their investments from three perspectives:  They want them to support them for their whole remaining life, so the investment has to have some longevity; people want to invest in safe assets that are not at the whims of rapid change to economic circumstances, especially after the GFC; and people want to see that their money can be readily accessed, sometimes for unexpected needs.

There is plenty retirees can do to avoid a financial loss or cut to your income.  We’ve boiled it down into three simple areas:

1.  Shop around for interest rate based products

Term deposit rates have already fallen following the interest rate cut.  It never takes the banks long.  But some banks are offering more competitive rates than others.  It could be worth you taking a look around to consider how you can get the best bang for your buck.

Depending on the period you are willing to lock up your money and the terms on which you want your interest paid,   different banks are offering a great variance in rates.  Some banks are offering a 12 month term deposit at 2.5%, while others are offering them at 3.4% with interest paid on maturity.  The difference on $100,000 invested could be as much as $450 in your pocket per year.

2.  Take a long hard look at property or, the alternative, funds that invest in property

Australian investors have had a long love-affair with real estate and 2015 is likely to be no different.  Leading National Property Adviser Jon Rivera, is insistent that retirees who invest carefully in the right properties should be able to achieve a yield of 4-6%, and that this should be available in city markets of Brisbane, Sydney and Melbourne at the moment.

“Property is performing strongly in many Australian cities where rental vacancy rates are between 1-2.5%.   And with the dollar dropping, I expect housing to have considerable capital growth this year.  International investors are bringing their money to Australia’s well-considered market and investing which we think will continue, and provide some support for growth,” said Mr Rivera.

And many of the superannuation funds and managed funds are investing in property, so they too offer some good exposure to this area for those who don’t want to own the hard assets but want to be exposed to growth.

3.  Consider allocating some of your money to a high risk investment like shares 

Whilst many retirees had their confidence and bank accounts bruised by the sharemarket in the GFC, the period since then has been stellar.  If your risk profile allows for some allocation to equities, experts tell us returns on a portfolio of well-selected blue chip shares can exceed a yield of 5.5%, and more if they achieve capital growth at the same time.  The big banks, utilities and property companies have been some of the yield-investor favourites for the last 24 months according to the Motley Fool, one of Australia’s respected investment sites.

Tell us today how you juggle your risk profile with your desire to sustain a decent income in a low interest rate environment.  Plenty of people are keen to compare notes!  

Rebecca Wilson

Rebecca Wilson is the founder and publisher of Starts at Sixty. The daughter of two baby boomers, she has built the online community for over 60s by listening carefully to the issues and seeking out answers, insights and information for over 60s throughout Australia. Rebecca is an experienced marketer, a trained journalist and has a degree in politics. A mother of 3, she passionately facilitates and leads our over 60s community, bringing the community opinions, needs and interests to the fore and making Starts at Sixty a fun place to be.

  1. Good for our kids but leave us short. Fortunately have shares. Have to check whether term deposits are worth having or just rely on deeming rate which no doubt will also reduce.

  2. We are part self funded retires with a part pension too. When the GFC hit we had most of our super in shares. Of course we panicked at first, like everyone and sought advice from our financial advisor, but in the end, we held on to our shares and we are now well in front again. Our super fund is higher this year than last year, even though we have been drawing down on it all year.. So glad we stuck it out.

    3 REPLY
    • We did that too, Val, on the advice of our financial advisor, and regained our losses! We have friends who panicked, put it all in cash, so didn’t benefit or regain their losses. I feel very lucky! We don’t have anything in Growth ( high risk, high gains and high losses) and are happy with our lot

  3. It’s been happening in the UK for years now , the young benifit from low mortgages but the old pay for it by getting very little return on their savings . Grossly unfair

  4. Forty five years ago we and many others were paying 18% on our mortgages.What we couldn’t afford we went without .

  5. We paid when we were young with high mortgages & no help of any kind from government with help for kids & still paying when we are aged & rates are down,they have the rest of their lives to off their mortgage haha we can’t win either way!!

  6. 6 or 7% for mortgages and around 3 to 4% for investment seems fairer. they forget that unless we invest it there is nothing available to borrow

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